Audit 346254

Inadequate Controls Over Payroll Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing No.: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) section 430 requires charges for salaries and benefits to be supported by a system of internal controls which provide reasonable assurance that the charges are accurate, and properly allocated. It also requires records to be used to support the distribution of employee salaries and benefits among specific activities if the employee works on multiple programs. The Uniform Guidance section 200.303 Internal Controls states the following: “The non Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Condition During our testing of a sample of four payroll transactions from the McKinney Education for Homeless Children grant, we noted that time sheets or time and effort reports were not available for any employees tested. As a result, we were unable to determine the accuracy of the payments to those employees. During our testing of an additional sample of 40 payroll transactions covering 29 employees and 10 pay periods of the Regional Office of Education #56 for purposes of testing controls over financial reporting, we noted the following: • Contracts specifying gross pay could not be provided for six employees • Three employee contracts lacked approval by the Regional Superintendent • Twelve payroll transactions were not supported by timesheets • Timesheets for four payroll transactions lacked supervisory approval • The Payroll Payment Authorization form for one pay period was not approved by the Regional Superintendent. During our testing of salary expenditures, we noted that total wages reported on the quarterly Form 941s for the year were $152,269 less than salary expenditures reported in the general ledger accounts. Regional Office of Education #56 personnel could not explain the variance or provide a reconciliation of Form 941 amounts to the general ledger. Questioned Costs None Context The Regional Office of Education expended a total of $1,187,011 of federal awards in fiscal year 2023. Total salaries and benefits charged to the McKinney Education for Homeless Children grant of $141,933 represents 21 percent of expenditures of that grant for the year. Effect Without maintained time sheets or time and effort reports, the allocation of employee’s time to grant programs cannot be accurately determined, and, in the case of hourly employees, the accuracy of pay cannot be verified. Also, lack of approvals on supporting documentation and lack of an audit trail increases the risk of unauthorized or erroneous payments to employees. Finally, the inability to reconcile wages per Form 941s to the general ledger could be indicative of errors in general ledger classifications or in the preparation of employee Form W-2s or Form 941s. Cause Regional Office of Education #56 management indicated that Lincoln School has had several bookkeepers recently and the current bookkeeper has only been at her position for a short amount of time and did not have access to and/or could not locate these files. Recommendation We recommend that the Regional Office of Education #56: • Review their payroll files to ensure that contracts approved by the Regional Superintendent or other authorization for pay rates exist; • Enhance procedures to ensure that timesheets or time and effort reports are prepared, maintained and approved; • Ensure that Payroll Payment Authorization forms are approved by the Regional Superintendent prior to payment of the payroll; and • Prepare and maintain documentation reconciling Form 941 wages to general ledger salary expenditures. Management Response We agree with the finding. The new CFO/CPA will ensure contracts support the payroll and that rates have approval and a rationale; timesheets are approved and maintained properly; payroll is approved by the Regional Superintendent prior to payroll; and, that 941's are reconciled to the general ledger.

Inadequate Controls Over Expenditures Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing No.: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) require that the Regional Office follow the standards set forth at 2 CFR 200.334 that requires “Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.” The Uniform Guidance section 200.303 Internal Controls states the following: “The non Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” In addition, Regional Office of Education #56 practices require the stamping of invoices as “paid” when processed in order to avoid duplicate payments. Condition During our testing of a sample of 40 expenditures of McKinney Education for Homeless Children grant funds by the Regional Office of Education #56, we noted that six expenditures totaling $52,005 did not have any supporting documentation. In addition, for those expenditures with supporting documentation, none of the invoices were stamped “paid”. During our testing of an additional sample of 40 expenditure transactions of the Regional Office of Education #56 for purposes of testing controls over financial reporting, we noted the following: • No documentation was available for four expenditures • No supporting invoices, but only purchase orders, were available for three expenditures • One invoice was not stamped “paid”. Questioned Costs $52,005 Context The Regional Office of Education expended a total of $1,187,011 of federal awards in fiscal year 2023. Of the total number of transactions tested (both grant and non-grant), 12.5% lacked any type of documentation. The greater percentage of total exceptions related to grant expenditures. Effect Inadequate controls over expenditures increase the risk of unauthorized or inappropriate spending as well as duplicate payment of invoices. A lack of supporting documentation for expenditures also results in questioned costs. Cause Regional Office of Education #56 management indicated that they have gone through many personnel changes recently and the new personnel had some difficulty finding files from when their predecessors were employed. Also, the “paid” stamp should have been used but was not used by everyone. Recommendation We recommend the Regional Office of Education #56 establish procedures to ensure that documentation supporting expenditures of federal awards is maintained in accordance with the Uniform Guidance. In addition, we recommend that the Regional Office of Education #56’s practice of cancelling invoices upon payment be consistently followed. Management Response We agree with the finding. Expenditures of federal funds will be more closely monitored, more adequately supported, and paid invoices will be marked as paid. Uniform Guidance will be more closely followed.

Lack of Written Procurement Policy Federal Program Name and Year: All federal awards Project Number: All federal awards Assistance Listing No: All Passed Through: N/A Federal Agency: All federal agencies Criteria/Specific Requirements Title 2 US Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Section 200.318 general procurement standards provide: (a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in Section 200.317 through 200.327. Condition The Regional Office of Education #56 does not have documented procurement policies in accordance with Federal requirements. Questioned Costs None Context While procurement, suspension and debarment was not tested as part of the major program testing, in obtaining an understanding of internal controls, the auditors determined that the procurement policy required by all federal programs does not exist. Effect The Regional Office of Education #56’s failure to have documented procurement policies represents a lack of compliance with Federal procurement requirements and could result in loss of federal funding. Cause Regional Office of Education #56 management indicated that they never prioritized completing a procurement policy. Recommendation We recommend that the Regional Office of Education #56 establish documented procurement policies in accordance with Uniform Guidance. Management Response We agree with the finding. A documented procurement policy will be established in accordance with Uniform Guidance.

Late Submission of Expenditure Report to the Illinois State Board of Education Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing #: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires that a non-federal entity’s financial management system, including records documenting compliance with federal statutes, regulations, and the terms and conditions of the federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statutes, regulations, and the terms and conditions of the federal award. Furthermore, the non-federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. The Illinois State Board of Education (“ISBE”) requires monthly expenditure reports to be submitted within 20 days after the period end. Condition One out of five (20%) expenditure reports tested was submitted by the Regional Office of Education #56 to ISBE 63 days after the period end or 43 days late. Questioned Costs None Context The late submission was the first report submitted for the fiscal year and reported cumulative expenditures of $15,163. Total expenditures of this grant were $686,293. Effect The late submission of expenditure reports to ISBE represents a lack of compliance with their requirements and may effect future funding with grantors. Cause Regional Office of Education #56 management indicated that expenditures for this grant were not able to be entered into ISBE’s system until October resulting in a shorter time frame for submission compared to other quarters. Recommendation We recommend that the Regional Office of Education #56 establish procedures to ensure that reports are submitted on a timely basis. Management Response We agree with the finding. Procedures will be established to ensure that expenditure reports are filed on a timely basis.

Inadequate Controls Over Payroll Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing No.: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) section 430 requires charges for salaries and benefits to be supported by a system of internal controls which provide reasonable assurance that the charges are accurate, and properly allocated. It also requires records to be used to support the distribution of employee salaries and benefits among specific activities if the employee works on multiple programs. The Uniform Guidance section 200.303 Internal Controls states the following: “The non Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” Condition During our testing of a sample of four payroll transactions from the McKinney Education for Homeless Children grant, we noted that time sheets or time and effort reports were not available for any employees tested. As a result, we were unable to determine the accuracy of the payments to those employees. During our testing of an additional sample of 40 payroll transactions covering 29 employees and 10 pay periods of the Regional Office of Education #56 for purposes of testing controls over financial reporting, we noted the following: • Contracts specifying gross pay could not be provided for six employees • Three employee contracts lacked approval by the Regional Superintendent • Twelve payroll transactions were not supported by timesheets • Timesheets for four payroll transactions lacked supervisory approval • The Payroll Payment Authorization form for one pay period was not approved by the Regional Superintendent. During our testing of salary expenditures, we noted that total wages reported on the quarterly Form 941s for the year were $152,269 less than salary expenditures reported in the general ledger accounts. Regional Office of Education #56 personnel could not explain the variance or provide a reconciliation of Form 941 amounts to the general ledger. Questioned Costs None Context The Regional Office of Education expended a total of $1,187,011 of federal awards in fiscal year 2023. Total salaries and benefits charged to the McKinney Education for Homeless Children grant of $141,933 represents 21 percent of expenditures of that grant for the year. Effect Without maintained time sheets or time and effort reports, the allocation of employee’s time to grant programs cannot be accurately determined, and, in the case of hourly employees, the accuracy of pay cannot be verified. Also, lack of approvals on supporting documentation and lack of an audit trail increases the risk of unauthorized or erroneous payments to employees. Finally, the inability to reconcile wages per Form 941s to the general ledger could be indicative of errors in general ledger classifications or in the preparation of employee Form W-2s or Form 941s. Cause Regional Office of Education #56 management indicated that Lincoln School has had several bookkeepers recently and the current bookkeeper has only been at her position for a short amount of time and did not have access to and/or could not locate these files. Recommendation We recommend that the Regional Office of Education #56: • Review their payroll files to ensure that contracts approved by the Regional Superintendent or other authorization for pay rates exist; • Enhance procedures to ensure that timesheets or time and effort reports are prepared, maintained and approved; • Ensure that Payroll Payment Authorization forms are approved by the Regional Superintendent prior to payment of the payroll; and • Prepare and maintain documentation reconciling Form 941 wages to general ledger salary expenditures. Management Response We agree with the finding. The new CFO/CPA will ensure contracts support the payroll and that rates have approval and a rationale; timesheets are approved and maintained properly; payroll is approved by the Regional Superintendent prior to payroll; and, that 941's are reconciled to the general ledger.

Inadequate Controls Over Expenditures Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing No.: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) require that the Regional Office follow the standards set forth at 2 CFR 200.334 that requires “Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient.” The Uniform Guidance section 200.303 Internal Controls states the following: “The non Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.” In addition, Regional Office of Education #56 practices require the stamping of invoices as “paid” when processed in order to avoid duplicate payments. Condition During our testing of a sample of 40 expenditures of McKinney Education for Homeless Children grant funds by the Regional Office of Education #56, we noted that six expenditures totaling $52,005 did not have any supporting documentation. In addition, for those expenditures with supporting documentation, none of the invoices were stamped “paid”. During our testing of an additional sample of 40 expenditure transactions of the Regional Office of Education #56 for purposes of testing controls over financial reporting, we noted the following: • No documentation was available for four expenditures • No supporting invoices, but only purchase orders, were available for three expenditures • One invoice was not stamped “paid”. Questioned Costs $52,005 Context The Regional Office of Education expended a total of $1,187,011 of federal awards in fiscal year 2023. Of the total number of transactions tested (both grant and non-grant), 12.5% lacked any type of documentation. The greater percentage of total exceptions related to grant expenditures. Effect Inadequate controls over expenditures increase the risk of unauthorized or inappropriate spending as well as duplicate payment of invoices. A lack of supporting documentation for expenditures also results in questioned costs. Cause Regional Office of Education #56 management indicated that they have gone through many personnel changes recently and the new personnel had some difficulty finding files from when their predecessors were employed. Also, the “paid” stamp should have been used but was not used by everyone. Recommendation We recommend the Regional Office of Education #56 establish procedures to ensure that documentation supporting expenditures of federal awards is maintained in accordance with the Uniform Guidance. In addition, we recommend that the Regional Office of Education #56’s practice of cancelling invoices upon payment be consistently followed. Management Response We agree with the finding. Expenditures of federal funds will be more closely monitored, more adequately supported, and paid invoices will be marked as paid. Uniform Guidance will be more closely followed.

Lack of Written Procurement Policy Federal Program Name and Year: All federal awards Project Number: All federal awards Assistance Listing No: All Passed Through: N/A Federal Agency: All federal agencies Criteria/Specific Requirements Title 2 US Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Section 200.318 general procurement standards provide: (a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standards identified in Section 200.317 through 200.327. Condition The Regional Office of Education #56 does not have documented procurement policies in accordance with Federal requirements. Questioned Costs None Context While procurement, suspension and debarment was not tested as part of the major program testing, in obtaining an understanding of internal controls, the auditors determined that the procurement policy required by all federal programs does not exist. Effect The Regional Office of Education #56’s failure to have documented procurement policies represents a lack of compliance with Federal procurement requirements and could result in loss of federal funding. Cause Regional Office of Education #56 management indicated that they never prioritized completing a procurement policy. Recommendation We recommend that the Regional Office of Education #56 establish documented procurement policies in accordance with Uniform Guidance. Management Response We agree with the finding. A documented procurement policy will be established in accordance with Uniform Guidance.

Late Submission of Expenditure Report to the Illinois State Board of Education Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing #: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires that a non-federal entity’s financial management system, including records documenting compliance with federal statutes, regulations, and the terms and conditions of the federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the federal statutes, regulations, and the terms and conditions of the federal award. Furthermore, the non-federal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. The Illinois State Board of Education (“ISBE”) requires monthly expenditure reports to be submitted within 20 days after the period end. Condition One out of five (20%) expenditure reports tested was submitted by the Regional Office of Education #56 to ISBE 63 days after the period end or 43 days late. Questioned Costs None Context The late submission was the first report submitted for the fiscal year and reported cumulative expenditures of $15,163. Total expenditures of this grant were $686,293. Effect The late submission of expenditure reports to ISBE represents a lack of compliance with their requirements and may effect future funding with grantors. Cause Regional Office of Education #56 management indicated that expenditures for this grant were not able to be entered into ISBE’s system until October resulting in a shorter time frame for submission compared to other quarters. Recommendation We recommend that the Regional Office of Education #56 establish procedures to ensure that reports are submitted on a timely basis. Management Response We agree with the finding. Procedures will be established to ensure that expenditure reports are filed on a timely basis.